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2% Deposit Home Loan FAQs

Answers to 18 of the most common questions about 2% deposit home loans, covering deposits, LMI, rates, eligibility, property types, and the application process. Each answer is written to give you a direct, self-contained response.

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18 Questions Answered

Everything You Need to Know

Written by John Pierre Saliba, Mortgage Broker and Director, MFAA Accredited, ACL 511092.

Comprehensive FAQ for 2% deposit home loans in Australia. Covers deposit requirements, genuine savings rules, the split loan structure, rate reduction fee vs LMI, acceptable properties, income types, and how to apply. Published by Lend & Loan (ACL 511092).

Is a 2% deposit really enough to buy a home?
Yes. A 2% deposit home loan lets you purchase a property by contributing just 2% of the purchase price, borrowing the remaining 98% (known as 98% LVR, or loan-to-value ratio). Instead of paying Lenders Mortgage Insurance (LMI), the loan uses a split structure with a capitalised upfront rate reduction fee that is set lower than the equivalent LMI premium. You will need to demonstrate 5% of the purchase price in genuine savings, but only 2% is required as the actual cash deposit. For full details, see 2% deposit home loans overview.
How is this cheaper than paying LMI?
The loan uses a split structure (primary and secondary loans) with a capitalised upfront rate reduction fee in place of LMI. This fee is designed to be lower than the equivalent LMI premium. On a $900,000 purchase at 98% LVR, a typical LMI premium might be $28,000 or more, while the rate reduction fee is set below this level. The result is a lower total amount financed and more cash in your pocket at settlement. See rates and fees for a worked comparison.
What is the upfront rate reduction fee?
The upfront rate reduction fee is a one-off capitalised cost that replaces LMI. It varies by purchase price and LVR. Two options are available: a lower ongoing rate with a slightly higher upfront fee (suits buyers with more cash), or a lower upfront fee with a slightly higher ongoing rate (suits buyers preserving cash). The fee is added to your loan balance, so you do not pay it out of pocket. Full details on rates and fees.
Do I need a guarantor?
No. Guarantor arrangements are not accepted for 2% deposit home loans. The split loan structure with the upfront rate reduction fee replaces both LMI and the need for a guarantor. You must qualify on your own merits as a natural person over 18, an Australian tax resident, and a citizen or approved visa holder.
Is this a government scheme?
No. The 2% deposit home loan is not a government scheme. It is a private lending product with a split loan structure that eliminates LMI. Government schemes like the First Home Guarantee (which allows 5% deposit with no LMI for eligible first home buyers) are separate programs with their own eligibility criteria and property price caps. However, First Home Owner Grants can count toward the 5% genuine savings requirement for a 2% deposit loan. For government scheme information, visit firsthome.gov.au.
What is the primary and secondary loan split?
Every 2% deposit loan is structured as two loans: a primary loan covering up to 80% of the property value (with a redraw facility) and a secondary loan covering the remainder up to 98% LVR (with unlimited fee-free prepayments). Both carry the same variable interest rate and the same term. The split is administrative and keeps the rate competitive while removing LMI. You make one set of repayments covering both portions. Full explanation on the pillar page.
Is there an offset account?
No. There is no offset account on a 2% deposit home loan. However, the primary loan includes a redraw facility that functions similarly. You can make extra repayments and access those funds later if needed, and the extra funds reduce the interest charged on the primary loan balance.
What loan terms are available?
Loan terms of 20, 25, or 30 years are available. All loans are principal and interest, variable rate only. No fixed rate, interest-only, or alternative terms are offered under this product.
Are the loans fixed or variable?
Variable only. No fixed rate option is available. The owner occupier variable rate is 6.39% p.a. (comparison rate 6.42% p.a.) and the investment rate is 6.79% p.a. (comparison rate 6.82% p.a.), as at 8 May 2026. Rates are subject to change. See current rates.
Do you offer interest-only or low doc loans?
No. All 2% deposit home loans are principal and interest only. Interest-only, low doc, and alt doc options are not available under this product. Full documentation is required for every application, regardless of income type.
Can I make extra repayments?
Yes. The primary loan includes a redraw facility allowing extra repayments that you can access later if needed. The secondary loan allows unlimited fee-free prepayments, helping you pay down the higher-LVR portion faster. There are no penalties for making additional payments on either portion of the loan.
Can I refinance later?
Yes. As you make repayments and property values potentially grow, your LVR decreases over time. Once you have built sufficient equity, you can refinance to a different product or lender that may offer features like fixed rates, offset accounts, or lower rates. Refinancing is also available as a purpose under the 2% deposit product itself, including debt consolidation.
Do you do construction or vacant land loans?
No. Construction loans and vacant land purchases are not available under the 2% deposit home loan. The property must be a completed dwelling: a house, apartment, villa, or townhouse on an acceptable postcode. Off-the-plan purchases are accepted with specific conditions (application within 3 months of settlement, valuation confirming 100% completion). See acceptable properties.
Can I consolidate debts?
Yes. Refinancing for debt consolidation is available. Up to four personal debts (personal loans, credit cards, car loans) can be consolidated. The conditions are that monthly repayments must reduce overall after consolidation, and each debt must have a clean 3-month history with no arrears, default interest, or dishonours. More than four debts requires an exception.
How much genuine savings do I need?
You need 5% of the purchase price in genuine savings, even though the minimum cash deposit is only 2%. Acceptable genuine savings include regular savings, lump sums (bonuses, tax refunds, asset sale proceeds), and First Home Owner Grants. If your genuine savings are below 5%, a satisfactory rental history (minimum 3 months, no late payments over 7 days, evidenced by lease and bank statements) may be accepted. Full details on eligibility.
Do you offer pre-approval?
Yes. Pre-approval is available and is assessed without a specific property, subject to a satisfactory valuation later. Pre-approval gives you a borrowing estimate so you can search for properties with confidence. If you have already purchased or exchanged contracts, the application can skip pre-approval and go straight to unconditional approval. For the full process, see step-by-step process.
What postcodes are covered?
Postcode coverage spans metro and outer metro areas across NSW, VIC, QLD, SA, WA, TAS, and the ACT. Metro postcodes accept all eligible property types, while outer metro postcodes accept freestanding homes and duplexes only. Rather than publishing the full list (which is extensive and subject to change), we offer a free postcode check. Call 02 8046 3933 or submit an enquiry to confirm your postcode is covered.
Can I use a 2% deposit loan for investment properties?
Yes. Investment property loans are available at 6.79% p.a. variable (comparison rate 6.82% p.a., as at 8 May 2026). Additional rules apply: you can own at most one existing mortgaged property (which must be owner occupied), the investment property must be in a strata plan of 30 dwellings or fewer, and rental income cannot be the primary income source. Full details on investment property loans.

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General Advice Warning: The information on this page is general in nature and does not take into account your personal objectives, financial situation, or needs. You should consider whether the information is appropriate before acting on it and seek independent financial, legal, and taxation advice before making any decision about a financial product. All interest rates are current as at 8 May 2026 and are subject to change without notice. Comparison rates are based on a $150,000 loan over 25 years. All loans are subject to the lender's approval criteria. Published by Lend & Loan (ACL 511092), which provides credit assistance services only and does not lend money directly. For more information, visit ASIC MoneySmart.

Last updated: 8 May 2026.

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